California Marine Cleaning, Inc. - Page 17

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          position was taken; that is, after the notice of deficiency was             
          issued.  For example, respondent argues that:  (1) Respondent was           
          substantially justified because respondent promptly settled the             
          accumulated earnings tax issue soon after petitioner told                   
          respondent about petitioner's error, and (2) respondent's                   
          position had a basis in fact because petitioner's section 534(c)            
          statement was insufficient to shift the burden of proof to                  
          respondent.                                                                 
               We disagree.  Respondent must have a basis in fact when                
          respondent issues the notice of deficiency.  Powers v.                      
          Commissioner, 100 T.C. at 473, 477-478; Kingston v. Commissioner,           
          T.C. Memo. 1998-119; Grimland v. Commissioner, T.C. Memo. 1993-             
          367; see Pierce v. Underwood, 487 U.S. at 564-565.  We do not               
          consider events occurring after respondent's position was                   
          adopted, such as respondent's prompt concession or petitioner's             
          failure to allege specific facts in its section 534(c) statement,           
          in deciding whether that position was substantially justified.              
          Powers v. Commissioner, supra at 477.                                       
               3.   Conclusion                                                        
               Respondent has not shown that respondent had a basis in fact           
          for the position that petitioner unreasonably accumulated                   
          earnings for FY 1992, 1993, and 1994 when respondent sent the               
          notice of deficiency or filed the answer.                                   








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